Article ID Journal Published Year Pages File Type
7356536 Journal of Banking & Finance 2018 17 Pages PDF
Abstract
We examine whether there is birthplace bias in addition to local bias in the portfolio choice of individual investors. We find that, on average, individual investors who live in their birthplace invest almost three times more of their portfolio capital in local firms than other locals. A bias toward birthplace firms persists for a long time after moving elsewhere and increases significantly for “homecomers.” Our detailed analysis suggests that individual investors' proximity bias is largely an urban phenomenon, which is explained neither by the information hypothesis nor by the familiarity hypothesis. We find that more sophisticated investors, in terms of portfolio diversification, earn, on average, abnormal portfolio returns, but they do this regardless of their portfolio distortion. Thus, attention ought to be directed toward whether individual investors are financially sophisticated rather than whether they are proximity biased.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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